Government Owned Reactor not Good Public Policy

Commentary, Crown Corporations, David Seymour

Friday’s Star Phoenix carried an op-ed (SaskPower Must Own Nuclear Reactor) that made the case for the provincial investment in a major facility like a nuclear reactor. That column was a valuable contribution to the debate because it shows what one needs to believe in order to support government ownership of such an asset.

It argued that provincial ownership of a reactor would ensure that profits would stay in the province, and that the facility would provide head office jobs vital for the province’s development. Further, it assumes that governments are more likely to regulate their own activities in the service of environmental and social goals than they are to regulate private interests. A closer examination of these arguments in favour of a Crown owned reactor for these reasons implies some interesting beliefs.

The ‘profit in the province’ argument runs that if the reactor is owned in Saskatchewan any profits will stay in the province instead of leaking to outside investors. The important phrase here is any profit, because in the normal run of things profits are not guaranteed. A reactor would certainly yield revenue, but it won’t necessarily be enough to cover the investment capital that must be sourced and repaid.

The capital must be diverted from other uses which were also expected to generate some return. Therefore, whether the capital comes from taxpayers in Weyburn or traders on Wall Street, the investors will rightfully expect at least an average return. For the plant owner/operator to end up better off, the reactor would have to make a return that is above average, with the difference being their true economic profit.

So the first thing you need to believe is that people working for government organizations generally pick above average investments. Following that logic, government departments should start investing all over the globe and make even more money for the province. Of course there is no reason to think government departments can consistently beat the market. With the political constraints they face, they are probably at a disadvantage. However if, for argument’s sake, we assume they will break even on this investment, there are some other reasons why government ownership might serve the public good.

The argument for a Crown reactor also presumes that the presence of Crown head offices is required for the province to succeed economically. This reasoning runs along the lines that local ownership would create high profile executive positions; otherwise we will all be become hewers of wood and drawers of water.’

Putting aside the irritating inference for everyone who doesn’t toil high in a Crown Corporation office tower that they are making an inferior contribution to the province’s future, growth patterns within the province do not support this argument.

So far as the benefits of having Crown head offices go, Saskatoon and the rest of the province subsidize Regina by paying crown fees but mostly missing out on the benefits of head offices. If this sacrifice to the Queen city were paying off, we might expect to see the best economic growth occurring there. As it happens, all the indicators show that growth is brisker in Saskatoon. Even before the current provincial economic burst, Saskatoon was leading Regina in population and in population growth for some time.

We are left with the ‘regulation’ argument, that if the government owns the facility it will be easier to achieve other goals, such as greater use of renewable energy, or equal opportunities employment. But regardless of whether the ownership is public or private, the government will have a regulatory role for prices, for environmental impacts, for labour laws, and anything else that it can muster votes for.

Regulation is about government acting on behalf of citizens to make companies do things they would not otherwise do. The regulation argument requires the belief that governments will regulate their own interests more eagerly than those of others. In practice, being the developer and the regulator at the same time creates a conflict of interest. If anything, we would expect the province to be a ‘softer’ regulator of its own business interests than of private ones.

To illustrate, in 2002 a City of Winnipeg owned sewer and wastewater plant accidentally released 437 million litres of raw sewage into the Red River. After an awkward legal delay, the courts levied no penalty at all on the City. It’s a safe bet that there would have been swift and harsh penalties had a private wastewater operator been responsible for the disaster. Similarly with nuclear, there are very real environmental impact issues with waste storage. As owner and regulator of nuclear assets the government would be conflicted in regulating itself.

The arguments for a government-owned reactor can be seductive – SaskPower could kill many public policy birds with one big investment. Closer examination shows, though, that this proposition runs contrary to what we have observed about government, investment and economics. It may well be SaskPower should build a reactor, but not the reasons examined here.